Violette v. First Options of Chicago

UNITED STATES OF AMERICA
Before the
COMMODITY FUTURES TRADING COMMISSION

__________________________________________
                                          :
        DR. GREGORY PAUL VIOLETTE, PAMELA :
    G. VIOLETTE, ROLANDA L. VIOLETTE, and : CFTC Docket No. 95-R128
      GERARD R. VIOLETTE d/b/a/ THE FIFTH :
          FREEDOM FIRM and d/b/a/ THE 5TH : ORDER OF REMAND
                             FREEDOM FIRM :
                                          :
                                       v. :
                                          :
FIRST OPTIONS OF CHICAGO, INC. d/b/a/ LIT :
       DIVISION OF FIRST OPTIONS, WILLIAM :
       STEVEN KAISER, LAKE FUTURES, LTD., :
       STEVEN PAUL NIMEROV, and STELLARIS :
                            FUTURES, L.P. :
__________________________________________:

Complainants appeal from an Administrative Law Judge's ("ALJ") dismissal of their complaint seeking approximately $31,000 in damages from respondents. The ALJ found that the complaint was barred due to a prior settlement agreement between some of the parties. Complainants assert that the ALJ should have had a hearing to determine the scope of the settlement agreement before determining that all their claims were barred. Respondents contend that the language of the agreement is plain and clearly supports the ALJ's dismissal of the complaint. For the reasons explained below, we affirm the ALJ's order of dismissal in part, reverse it in part, and remand for further proceedings.

BACKGROUND

In August 1995, Gregory, Rolanda, Pamela, and Gerard Violette ("the Violettes") filed a pro se reparation complaint against (1) First Options of Chicago, Inc., d/b/a/ LIT Division of First Options ("First Options"); (2) Lake Futures, Ltd.; (3) Steven Paul Nimerov; (4) William Steven Kaiser; and (5) Stellaris Futures, L.P. ("Stellaris"), alleging misrepresentation. The Violettes claimed that associated persons ("AP") Nimerov and Kaiser led them to believe that the Essex guidance system, a futures trading system allegedly used by the Violettes, had a ten-year actual performance record. In fact, the Essex guidance system was based only on hypothetical trading results. The complaint included four commodity trading accounts, and indicated that the Violettes were d/b/a The 5th Freedom Firm or d/b/a The Fifth Freedom Firm.

Respondents First Options, Lake Futures, and Nimerov filed motions to dismiss the complaint asserting that a settlement agreement in a prior proceeding (CFTC Docket No. 94-R151) released them from this complaint. The settlement agreement was signed in June 1995 by Gregory and Rolanda Violette and these respondents and provided for a release of all claims between them. In turn, respondents paid $9,000 to Gregory and Rolanda Violette. Respondents insisted that not only were Gregory and Rolanda Violette bound by the settlement, but that Pamela and Gerard Violette also were bound as their partners. They based their contention on the provision of the settlement agreement releasing the "partners" of Gregory and Rolanda Violette and on the complaint's listing complainants as d/b/a The 5th Freedom Firm or the Fifth Freedom Firm.

In opposing dismissal, complainants argued that Gregory and Rolanda Violette's settlement of the prior case concerned a single account at First Options and that Gregory and Rolanda Violette did not intend to waive claims involving different accounts or different respondents. They challenged respondents' claim that Pamela and Gerard Violette were partners of Gregory and Rolanda Violette, noting that the accounts in question were designated joint accounts and not partnership accounts.

In December 1995, the ALJ granted the motion to dismiss filed by First Options, Lake Futures, and Nimerov in light of the settlement agreement executed by Gregory and Rolanda Violette and dismissed the complaint of all the complainants as against these three respondents. The ALJ did not specifically explain his implicit conclusion that Pamela and Gerard Violette were bound by a settlement agreement they had not personally executed.

Respondent Kaiser filed a motion to dismiss contending that he was a former agent of Stellaris, and was, therefore, covered by the settlement agreement. In response, complainants reiterated their argument that the settlement of the prior case did not affect anything other than claims relating to the First Options account of Gregory and Rolanda Violette. In February 1996, the ALJ granted Kaiser's motion in light of the settlement agreement executed by Gregory and Rolanda Violette. The judge found that Kaiser was covered by the settlement agreement due to his status as a former agent of Lake Futures.

Lastly, Stellaris, the final respondent, filed a motion to dismiss. Citing Reed v. Sage Group, Inc. et al., [1987-1990 Transfer Binder] Comm. Fut. L. Rep. (CCH) � 23,943 (CFTC Oct. 14, 1987), Stellaris asserted that as a guaranteed introducing broker ("IB") of First Options, it was an agent of First Options and covered by the settlement agreement. In May 1996, the ALJ dismissed Stellaris. Citing In the Matter of Paragon Futures Association, et al., [1990-1992 Transfer Binder] Comm. Fut. L. Rep. (CCH) � 25,266 (CFTC Apr. 1, 1992), the ALJ found Stellaris to be an agent of First Options and released by the settlement agreement. Consequently, the ALJ dismissed the entire complaint with prejudice.

In June 1996, complainants filed a timely appeal. Their brief contended that the ALJ should have had a hearing to determine the scope of the settlement agreement and whether Gregory and Rolanda Violette had the authority to execute the agreement on behalf of Pamela and Gerard Violette. In their answering briefs, respondents First Options, Lake Futures, and Stellaris again asserted that the plain language of the agreement supports the ALJ's dismissal of the complaint. Neither Nimerov nor Kaiser filed a response to complainants' appeal.

DISCUSSION

Since respondents are raising the settlement agreement as a defense to complainants' claims, they bear the burden of proof on factual issues. Lowrance v. Hacker, 866 F.2d 950, 952 (7th Cir. 1989). As do courts, the Commission generally construes settlement agreements under principles applicable to contracts. Air Line Stewards, Etc. v. American Airlines, Inc., 763 F.2d 875, 877 (7th Cir. 1985), cert. denied, 474 U.S. 1059 (1986). In interpreting written agreements, the primary objective is to determine the intent of the parties from the express language used in the agreement. Id.

Generally, when the parties' intent is clearly and unambiguously expressed in a written agreement, the agreement stands on its own. Id. at 878. When the parties' intent is ambiguously expressed in the agreement, parol evidence must be considered to make a reliable determination of what the parties intended. Id.

We begin by examining the consequences arising from the settlement agreement for the claims raised by Gregory and Rolanda Violette. We find that the express language of the agreement unambiguously reflects an intent to resolve all claims between Gregory and Rolanda Violette and First Options, Lake Futures, and Nimerov. The agreement states that Gregory and Rolanda Violette released First Options, Lake Futures, and Nimerov from "any and all actions, causes of action, claims, debts, liabilities, damages, costs, loss of services, expenses, compensation, demands and/or suits whatsoever." Therefore, the agreement clearly waives all claims between these particular parties, not just those involving a single account at First Options as argued by complainants. Accordingly, we affirm the ALJ's order dismissing Gregory and Rolanda Violette's claims against First Options, Lake Futures, and Nimerov.

As for Kaiser, the settlement agreement releases First Options, Lake Futures, Nimerov, and "all of their present and former agents, employees, officers, attorneys, directors, limited and general partners, heirs, legal representatives, successors and assigns." We take official notice of Kaiser's registration record, and find that he was a former AP of both First Options and Lake Futures at the time the settlement agreement was signed and therefore was their former agent. Accordingly, any claims of Gregory and Rolanda Violette against Kaiser that arose while Kaiser was an AP for either First Options or Lake Futures are dismissed.

Kaiser's registration record also indicates that he is a former AP of Stellaris. We find that the settlement agreement is unclear as to whether any alleged misrepresentations by Kaiser while employed at Stellaris were included. The agreement released former agents of First Options, Lake Futures, and Nimerov from "any and all actions," but it is unclear as to whether the "actions" referred to are limited to those arising from acts taken in furtherance of an agency with First Options, Lake Futures, or Nimerov. In light of this ambiguity, we cannot say, on the current record, that Gregory and Rolanda Violette settled claims arising out of Kaiser's activities at Stellaris. On remand, both parties shall be free to develop the record on the parties' intent as to this portion of the settlement agreement and Kaiser bears the burden of proof on whether he is released by the settlement agreement.

As for Stellaris, we find that the record does not contain enough information to support a determination that Stellaris was included in the agreement as an agent of First Options. Stellaris argues that, since it was a guaranteed IB of First Options at the time the settlement agreement was signed, it was an agent of First Options and released by the agreement. Under Commission precedent, the question of agency is generally a matter of facts and circumstances. Wirth v. T&S Commodities, Inc., [1990-1992 Transfer Binder] Comm. Fut. L. Rep. (CCH) � 25,271 at 38,875 (CFTC Apr. 6, 1992). The Commission has never held that status as a guaranteed IB, standing alone, is sufficient to establish agency. Since this is the only fact on the record, there is no reliable basis for determining whether Stellaris is covered by the agreement. On remand, both parties shall be free to develop the record on the nature of Stellaris's relationship with First Options and Stellaris bears the burden of proof on whether it is released by the settlement agreement.

With respect to Pamela and Gerard Violette, we find that the ALJ erred in concluding that they were covered under the agreement as "partners" of Gregory and Rolanda Violette. While the settlement agreement provides that Gregory and Rolanda Violette released their "partners, legal representatives, successors and assigns," the record does not contain any information as to whether Pamela or Gerard Violette fit into any of these categories. The record also is silent regarding The 5th Freedom Firm or The Fifth Freedom Firm. Respondents First Options and Lake Futures contend that complainants were partners d/b/a The 5th Freedom Firm and/or The Fifth Freedom Firm, but they have offered no evidence to support this allegation. There is not enough information on the record to determine whether complainants were operating as a partnership, and therefore it cannot be determined if Pamela and Gerard Violette are covered by the settlement agreement. On remand, both parties shall be free to develop the record on the legal relationship among the complainants and whether such relationship resulted in a release of claims under the settlement agreement. Respondents First Options, Lake Futures, and Nimerov bear the burden of proof on whether Pamela and Gerard Violette are released by the settlement agreement.

In summary, we find that the record supports the dismissal of all claims Gregory and Rolanda Violette raised against respondents First Options, Lake Futures, and Nimerov. It also supports the dismissal of the claims Gregory and Rolanda Violette raised against respondent Kaiser involving Kaiser's conduct while working for First Options and Lake Futures. The record is insufficient to support dismissal of any other aspect of the complaint. Therefore, the ALJ's dismissal of the complaint is accordingly affirmed in part and reversed in part. This matter is remanded for discovery and a hearing on both the merits of complainants' remaining claims and on any defense raised by respondents including further defenses based on the settlement agreement.

IT IS SO ORDERED.

By the Commission (Chairperson BORN and Commissioners DIAL, TULL, HOLUM, and SPEARS).

_____________________________
Jean A. Webb
Secretary of the Commission
Commodity Futures Trading Commission

Dated: February 20, 1997